Tuesday, March 31, 2009

Nationalization, stimulation, subsidization, appropriation, bond buybacks and bailouts. In the space of a year, global policymakers have thrown away 30 years of free-market orthodoxy in an unprecedented intervention in the global economy. In the second instalment of a two-part series, the Financial Post takes a look at the repercussions for growth, banking and monetary policy.

Healthy people who take a cheap five-in-one combination "polypill" of aspirin and cholesterol and blood pressure-­lowering drugs, could slash heart disease and strokes by half, the authors of a study presented yesterday say.

The polypill concept has been around for some years, but the news from the American College of Cardiology annual conference brought it closer to a reality. The combination drug, manufactured cheaply by an Indian generics company, has been tested in 412 volunteers. Others in the trial in 50 centres in India, which included more than 2,000 people, took the blood pressure and cholesterol-­lowering drugs individually.

The object of this early trial, also published online by the Lancet, was to see whether the cocktail of drugs in one pill worked as well as the drugs taken ­separately.

The researchers found that the Polycap, as the pill has been named, reduced blood pressure and heart rate just as effectively. It also lowered cholesterol, but not quite as much as the statin it contains would have done on its own.

Time dubbed the three "the committee to save the world," crediting them with leading the global financial system through a crisis that seemed terrifying at the time, although it was a small blip compared with what we're going through now.

All the men on that cover were Americans, but nobody considered that odd. After all, in 1999, the United States was the unquestioned leader of the global crisis response.

That leadership role was only partly based on American wealth; it also, to an important degree, reflected America's stature as a role model. The United States, everyone thought, was the country that knew how to do finance right.

How times have changed.

Never mind the fact that two members of the committee have since succumbed to the magazine-cover curse, the plunge in reputation that so often follows lionization in the media. (Summers, now the head of the National Economic Council, is still going strong.) Far more important is the extent to which our claims of financial soundness – claims often invoked as we lectured other countries on the need to change their ways – have proved hollow.

Monday, March 30, 2009

I am writing this to inform everyone as best I can about an issue we all should be very concerned with. There is currently a Georgia House Bill being introduced by Representative Bobby Franklin (R-43) called The "Constitutional Tender Act" (HB 430) with the purpose of returning money back to a commodity based currency backed by gold and silver as in accordance with Article 1 Section 10 of the United States Constitution. This is a great first step in gaining back the value in our dollar, which is currently worth about 3 cents as compared to the value in 1913 before we delegated the powers to coin money and regulate the value thereof from the Congress (as sated in Article 1 section 8) to a central bank which we know today as the Federal Reserve. As many of you probably already know, we currently have a fiat based monetary system which means there is no backing of the currency, it is merely printed and brought into the money supply, however many of you may not realize the implications of such a financial system and how it affects you in your daily life.

Without a 100% gold and silver standard the Federal Reserve is able to practice three basic procedures to increase/decrease money supply and therefore decrease the value of our dollar through inflation. First is the buying and selling of government securities such as U.S. Treasury Bonds. When the government needs money to fund projects such as the bailouts all of you have been hearing about, it issues bonds. These bonds are then bought by the Federal Reserve (which is not actually part of the federal government) and the government receives the money needed to fund their projects. Contrary to what you may think, this money was not just sitting there waiting to be used, it was created in computer systems on balance sheets and therefore increases the over all supply of money floating around.

Shares in troubled German mortgage lender HRE surged on Monday on expectations of a government takeover offer after the government said it was buying an initial 8.7 percent stake as a prelude to a full nationalization. HRE's head office in Munich. Zoom DDP HRE's head office in Munich.

Shares in troubled German mortgage bank Hypo Real Estate jumped as much as 47 percent to ¬1.67 ($2.22) on Monday morning following Saturday's announcement that the government is taking an initial 8.7 percent stake as a prelude to acquiring full control.

The government's bank bailout fund Soffin will buy 20 million new HRE shares for ¬60 million. That is a tiny fraction of the recapitalization HRE needs after getting into trouble in the financial crisis, but it was seen by investors as a sign of the government's commitment to saving the bank.

For more than a year, the U.S. Federal Reserve System has been increasingly acting as the world's central bank, injecting hundreds of billions of dollars into foreign government treasuries in an effort to increase liquidity in those countries.

The foreign central banks have used the U.S. currency to bail out financial institutions within their borders. The Fed program links its balance sheet directly to the fates of foreign central banks at a time when they're on the ropes.

The program has so far gone unreported in the mainstream media and is a major expansion of Federal Reserve involvement in the global economy. It represents a stark break from the prior role of the Fed, moving it into territory more traditionally occupied by the International Monetary Fund (IMF). The program puts both the Fed and the foreign central banks at increased risk. If the bailed-out banks can't repay the loans, the foreign central bank is still on the hook to the Fed. It would have to raise the money by selling debt -- which most Europeans are finding difficult today -- or raise taxes or cut spending, actions that further exacerbate the economic crisis. Or, the foreign central bank could default, leaving the U.S. holding a bag of foreign currency of plummeting value.

The dollar's role as the world's dominant currency is coming under intense scrutiny.

This week, China added its voice to demands for a new global currency as an alternative to the dollar in international trade and finance.

It is worried that the dollar's value is being eroded by the steps the US is taking to rescue its economy from the worst financial crisis since the 1930s.

The US currency recorded its biggest weekly slide since 1985 last week, after the Federal Reserve said it would begin buying government debt to try to boost the economy, underscoring concerns.

"Calls for a new global currency come at a time when the US dollar is probably at its most vulnerable in many years," says Mitul Kotecha, global head of foreign exchange strategy at French financial services firm Calyon.

Arkady Dvorkevich, the Kremlin's chief economic adviser, said Russia would favour the inclusion of gold bullion in the basket-weighting of a new world currency based on Special Drawing Rights issued by the International Monetary Fund.

Chinese and Russian leaders both plan to open debate on an SDR-based reserve currency as an alternative to the US dollar at the G20 summit in London this week, although the world may not yet be ready for such a radical proposal.

Mr Dvorkevich said it was "logical" that the new currency should include the rouble and the yuan, adding that "we could also think about more effective use of gold in this system".

The Gold Standard was the anchor of world finance in the 19th Century but began breaking down during the First World War as governments engaged in unprecedented spending. It collapsed in the 1930s when the British Empire, the US, and France all abandoned their parities.

When insurance giant American International Group Inc. imploded last fall, the firm's problems were quickly blamed not on its core insurance business, but on an obscure operation that traded exotic mortgage securities.

But as the economic crisis has deepened, it has become clear that AIG's problems extend across most of its business lines, including its massive life insurance and retirement services operations, which reported a staggering $18-billion quarterly loss earlier this month.

The company's situation is emblematic of problems across the life insurance industry, which is suffering deep losses on investments that underlie policies for millions of American families.

So far, some of the biggest companies have suffered sharp drops in their stock prices, and many of them are asking for federal assistance.

Industry conditions last year were the worst in memory and are expected to grow deeper this year amid credit rating downgrades, declining revenues and investment losses, according to credit rating firm A.M. Best Co.

The worst-case scenario is that a second financial crisis is looming if these life insurance companies come under too much stress.

"It was essentially a house of cards at AIG," said Donn Vickrey, a forensic accountant and co-founder of Gradient Analytics in Scottsdale, Ariz. "I would characterize other life insurers as suffering varying degrees of risk."

Sunday, March 29, 2009

South Africa is on the brink of a “jobs bloodbath”. Between 200000 and 300000 people stand to lose their jobs this year on top of the more than 112000 who have already been laid off since November.

And the situation is exacerbated by 350000 school leavers who are looking for work.

More than 1.2 million South Africans are expected to be in crisis by year-end as each lost job affects an entire family.

The losses could push the unemployment rate — pegged at 22% by the government and 40% by various research units — up by “roughly 3%”.

Said economist Mike Schussler: “We’re in deep trouble, and we’re definitely heading for a very deep recession. I expect a bloodbath for jobs; anywhere between 200 000 and 300000 losses for the year.”

The worst-hit sectors are automotive, mining, and clothing and textiles.

According to the director-general of trade and industry, Tshediso Matona, only the pharmaceutical, chemical and agricultural processing industries indicated they were not considering lay offs at a crisis meeting between government and trade federations on Thursday.

Matona, who is the government’s point-man on the credit crunch, said the automotive sector had shed 47000 jobs since the global economic crisis began to bite in October.

The expected drop in internet advertising revenues this year was neither unpredictable nor unpredicted, nor was it caused solely by the general recession and the decline in retail sales. Internet advertising will rapidly lose its value and its impact, for reasons that can easily be understood. Traditional advertising simply cannot be carried over to the internet, replacing full-page ads on the back of The New York Times or 30-second spots on the Super Bowl broadcast with pop-ups, banners, click-throughs on side bars. This might be a subject where considerable disagreement is possible, if indeed, pushed ads were still working in traditional media. Mostly they have failed. One newspaper after another is going out of business across the United States, and the ad revenues of traditional print media, even of highly respected magazines, is declining. The ultimate failure of broadcast media advertising is likewise becoming clear.

Gauteng's public hospitals are in crisis after suppliers of food and medical necessities cut off deliveries because of non-payment .

Some are facing water and electricity cuts because municipal bills have not been settled.

The Mail & Guardian is in possession of letters written by desperate hospital staff to Gauteng's health department pleading for funds because they have run into life-threatening shortages.

For the first time this week the Gauteng government acknowledged "delays in the payment of contractors" by South Africa's richest province. Earlier officials had denied chronic payment delays and accused opposition parties who raised the issue of "cheap politicking".

The M&G revealed last week that Gauteng building contractors constructing low-cost houses have not been paid for weeks and some face insolvency.

The Obama administration on Saturday moved to quell a public war of words with European leaders over the need to boost government spending to combat the financial crisis, making clear it has no desire to dictate spending targets for other countries.

The diplomatic effort comes as President Obama prepares to make his first trip across the Atlantic this week for a series of meetings, including Thursday's economic summit in London. In recent days, European leaders have sharply criticized the United States, which they said was pushing them for more global stimulus.

The summit, which will bring together heads of state from more than 20 nations, inspired tens of thousands of protesters to take the streets of European capitals Saturday to voice distress over economic issues. U.S. and European officials say nations are set to agree on a number of sweeping measures, including a broad overhaul of global financial regulations and an expanded role for the International Monetary Fund.

Saturday, March 28, 2009

The City breathed a sigh of relief today when investors turned out in force to buy government debt, following yesterday's auction debacle.

The sale of £1.1bn of inflation-linked gilts (government bonds) maturing in 2022 was almost three times oversubscribed, indicating a healthy level of interest from investors.

The UK debt management office said it attracted £2.98bn of bids. David Buik of BGC Partners described the result as "an unqualified success".

It contrasts with yesterday's auction, when the government could not find enough buyers for its £1.75bn sale of 40-year gilts - the first failure of a gilt auction in seven years. This cast doubt on the government's ability to borrow billions of pounds to lift the economy out of recession.

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

“News reports confirm that a two-seater Cessna aircraft crashed into the local cemetery near Washington this morning. Police on the scene have uncovered 100 bodies so far and expect to find many more."

Yes, that certainly is an awful joke; but it well typifies the unintended consequences of actions undertaken by the world's central banks from the past few days. In no particular order, we had the following major developments this week:

1. Egged on by the act of the Federal Reserve buying up US Treasury bonds, the Treasury unveiled its very popular but completely brain-dead proposal for a public-private initiative aimed at removing loans and securities sitting on the moribund balance sheets of US banks.

2. The president of the European Central Bank (ECB), Jean Claude Trichet, rejected demands for an increase in stimulus spending in Europe, a point of contention with the Barack Obama administration.

3. Bank of England governor Mervyn King warned that inflation could worsen in the United Kingdom and require a sharp increase in interest rates thereafter.

Once as rooted in the Scottish soil as this city's famous castle, the Royal Bank of Scotland ventured far during the era of globalization -- pumping billions of dollars worth of credit overseas as it expanded into markets as diverse as Kazakhstan, China and Rhode Island.

But just as RBS came to symbolize the free flow of credit across borders, the worldwide financial crisis has turned it into a leading example of the reverse: protectionism in the 21st century.

The government took majority control of the venerable bank four months ago after it suffered the worst corporate loss in British history. Authorities promptly issued a fresh directive: RBS, which had been in private hands since 1727, would have to sharply boost lending to British companies and home buyers stung by the global credit crunch -- effectively curtailing lending to its equally hard-hit customers overseas. As RBS prepares to comply with the government order to pump billions of dollars more into British credit markets, it is retrenching in at least 15 countries, moving to sell off branches from Vietnam to Romania.

In the United States, where RBS operates the nation's 10th largest bank, the company recently sold off 65 subsidiary branches in Indiana and scaled back auto loan operations in Texas, Colorado, Oklahoma and Arizona.

World leaders gathering for a major economic summit in London next week are vowing not to repeat the trade wars of the 1930s by imposing the kind of protectionist tariffs on butter, steel and other goods that deepened the Great Depression. But while their promises center largely on avoiding classic forms of trade barriers -- such as higher taxes on imported cars -- the rise of financial protectionism poses a far greater threat to global recovery.

Even though tens of millions of users were flocking to social media sites every day, most marketers stayed away. They either didn’t understand how to join the conversations—without sounding like shills—or they were frightened away by the prospect of associating their brands with questionable content.

But things are changing.

Companies are learning how to leverage social media and tap into the rising tide of consumers participating in social network sites, blogs, wikis and Twitter.

According to the “The ROI on Social Media Marketing” report from the Aberdeen Group, sponsored by Visible Technologies, marketers have developed the tools and methodologies to drive marketing ROI by listening to and learning from customers and prospects.

Thursday, March 26, 2009

Researchers at a US Navy laboratory have unveiled what they say is "significant" evidence of cold fusion, a potential energy source that has many skeptics in the scientific community.

The scientists on Monday described what they called the first clear visual evidence that low-energy nuclear reaction (LENR), or cold fusion devices can produce neutrons, subatomic particles that scientists say are indicative of nuclear reactions.

"Our finding is very significant," said analytical chemist Pamela Mosier-Boss of the US Navy's Space and Naval Warfare Systems Center (SPAWAR) in San Diego, California.

"To our knowledge, this is the first scientific report of the production of highly energetic neutrons from a LENR device," added the study's co-author in a statement.

The study's results were presented at the annual meeting of the American Chemical Society in Salt Lake City, Utah.

The city is also the site of an infamous presentation on cold fusion 20 years ago by Martin Fleishmann and Stanley Pons that sent shockwaves across the world.

Despite their claim to cold fusion discovery, the Fleishmann-Pons study soon fell into discredit after other researchers were unable to reproduce the results.

Scientists have been working for years to produce cold fusion reactions, a potentially cheap, limitless and environmentally-clean source of energy.

Wednesday, March 25, 2009

The decision by the Indian Premier League (IPL) to relocate its tournament this year to South Africa after the Indian government declared that it was unable to guarantee security during the month-long event due to a clash with the country's general election is a considerable coup for the African nation.

IPL chairman Lalit Modi and his counterpart from Cricket South Africa, Gerald Majola, confirmed the decision to move the tournament at a press conference in South Africa this afternoon. Matches will be held between April 17 and May 24, and will take place at six venues in South Africa: Johannesburg, Pretoria, Cape Town, Durban, Port Elizabeth and East London.

England had been also been considered as a potential venue for the IPL, and made the initial running in the race to host it, but concerns over the climate in the country in April and a clash with the London Marathon meant that South Africa triumphed in the end.

The tournament will give the country a considerable - and quite unexpected - financial boost, as the IPL jamboree will bring thousands of players, team officials and spectators to South Africa for more than a month. There will also be allied revenues from tourism and TV deals to cover the matches. It will also provide the country with a perfect dry-run for next year's football World Cup, as the infrastructure being put in place for the 2010 event will be thoroughly tested and flaws in it made apparent during the IPL can be rectified in time for next year.

Tuesday, March 24, 2009

Over the weekend The Times and other newspapers reported leaked details about the Obama administration’s bank rescue plan, which is to be officially released this week. If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.

This is more than disappointing. In fact, it fills me with a sense of despair.

After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.

It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.

The South African government has denied the Dalai Lama a visa to attend a Peace Conference that will be held in South Africa. The government decision has sparked an uproar online on Twitter, Facebook and blogs.

The Dalai Lama’s presence at the conference would have distracted the world’s attention from South Africa’s hosting of the World Cup and drawn it instead into the fraught relations between the Dalai Lama and China, one of the country’s most important trading partners. Thabo Masebe, a government spokesman, said the Tibetan leader’s presence “would not be in South Africa’s best interests.”

Ironically, by refusing the visa application the spotlight is now focused on exactly what they are trying to avoid. A Google search for the statement above results has over 2000 results, 100's of twitter posts and several facebook groups have been created to protest it.

If all goes as expected, South Africa will soon be led by a president who is also the defendant in a criminal case, a man accused of fraud and racketeering, legally empowered to select officials who could either drop his prosecution or push it forward.

Jacob Zuma, president of the African National Congress, which is expected to end up in the majority after parliamentary elections on April 22, speaks of his coming trial as a civics lesson.

However one feels about the presumptive next president, Jacob Zuma — and most of the feelings here align toward extremes — his ascension to the top job will test the rule of law in a country often regarded as the democratic anchor of the continent.

Virtually every South African has long wondered what will happen if and when a Zuma prosecution and a Zuma presidency meet at the crossroads. Ticklish days lie ahead.

“It’s hard to see a solution that doesn’t somehow weaken our institutions, not only in the eyes of the country but in the eyes of the world,” said Adam Habib, a political analyst.

Parliamentary elections are scheduled for April 22, and the governing African National Congress will almost surely end up in the majority. Parliament would then elect Mr. Zuma, the A.N.C.’s leader and a man accused of accepting 783 payments from a convicted briber, as president.

Many here are expecting some sort of expedient political stratagem to keep the nation’s leader from the demeaning spectacle of a trial. Will a newly selected chief of prosecution abruptly decide the case has no merit? Will an A.N.C.-dominated Parliament pass a measure that outlaws the trial of a sitting president — sometimes referred to as the “Berlusconi solution,” named for the immunity granted Prime Minister Silvio Berlusconi of Italy?

It only takes a quick look at the paper, or flipping on the radio to TV to figure out that we’re in some economic dark times. With the housing meltdown, massive unemployment, and bailouts of all kinds it’s no secret that we have seen better days. With the worse economy since the Great Depression, stocks have suffered horribly. The S&P 500 was down 35% in 2008 and has seen another 15% drop in 2009 so far.

With investors seeing their returns vanish and their principle disappear a lot of people are investing in gold to stay off the ill effects of the economy.

African economies would suffer about $578 billion lose in export earnings in the next two years due to the on going global economic crisis.This is part of the observations of the Committee of African Finance Ministers and Central Bank Governors established to monitor the impact of the crisis on African countries

It would be recalled On 12 November 2008, the Heads of the African Development Bank, the African Union and the United Nations Economic Commission for Africa convened a meeting of African Ministers of Finance and Governors of Central Banks in Tunis, Tunisia, to discuss Africa in the face of the global financial and economic crisis. The meeting created a Committee of Ten to take stock of the impact of the crisis on Africa and provide appropriate advice to African Heads of State.

The committee in its report stated that, "Although most African countries are not on track to meet the Millennium Development Goals, Africa had made steady progress over the last decade, building the foundations for higher growth and poverty reduction. This more optimistic picture is now being undermined by factors outside its control. While the initial effects of the financial crisis were slow to materialize in Africa, the impact is now becoming clear. It is sweeping away firms, mines, jobs, revenues, and livelihoods; it is in short a full blown development crisis. For the first time in a decade there will be zero growth per capita. This note provides evidence of the effects, and suggests action needed.

China called for the creation of a new currency to eventually replace the dollar as the world's standard, proposing a sweeping overhaul of global finance that reflects developing nations' growing unhappiness with the U.S. role in the world economy.

The unusual proposal, made by central bank governor Zhou Xiaochuan in an essay released Monday in Beijing, is part of China's increasingly assertive approach to shaping the global response to the financial crisis.

Mr. Zhou's proposal comes amid preparations for a summit of the world's industrial and developing nations, the Group of 20, in London next week. At past such meetings, developed nations have criticized China's economic and currency policies.

This time, China is on the offensive, backed by other emerging economies such as Russia in making clear they want a global economic order less dominated by the U.S. and other wealthy nations.

However, the technical and political hurdles to implementing China's recommendation are enormous, so even if backed by other nations, the proposal is unlikely to change the dollar's role in the short term. Central banks around the world hold more U.S. dollars and dollar securities than they do assets denominated in any other individual foreign currency. Such reserves can be used to stabilize the value of the central banks' domestic currencies.

Monday's proposal follows a similar one Russia made this month during preparations for the G20 meeting. Like China, Russia recommended that the International Monetary Fund might issue the currency, and emphasized the need to update "the obsolescent unipolar world economic order." [Dollar Dominated]